Stocks finished higher on Thursday as investors cheered a strong reading on productivity and lower labor costs for the second quarter, along with firm retail sales reports for October. The market weathered a close in the 10-year Treasury yield at 4.644%, its highest since June 2004, reflecting a shift in focus toward economic growth and away from inflation concerns, says Standard & Poor's MarketScope.
The Dow Jones industrial average rose 49.86 points, or 0.48%, to 10,522.59. The broader Standard & Poor's 500 index was up 5.18 points, or 0.43%, to 1,219.94. The tech-heavy Nasdaq composite index gained 15.91 points, or 0.74%, to 2,160.22.
December NYMEX crude oil jumped $2.03 to $61.78 a barrel, amid a round of short covering after Wednesday's dive to three-month lows of $58.75, says Action Economics.
Friday's main event is the October employment report. Nonfarm payrolls is expected to rise by 110,000, with a lingering drag from the hurricanes and high energy prices, says Action Economics. The unemployment rate is expected to hold at 5.1%.
In economic news Thursday, U.S. third-quarter nonfarm productivity surged 4.1%, up from a revised 2.1% rate in the second quarter (1.8% previously). Unit labor costs fell 0.5% after a revised 1.8% increase in the second quarter (2.5% previously). On a year-over-year basis, productivity is up 3.0% from 2.32% previously; unit labor costs dipped to a 2.7% rate from 4.1%. "These data are really good news for the markets," says Action Economics.
The October ISM non-manufacturing index, which covers mostly the services sector, came in higher than forecast, rebounding to 60.0 in October after slumping 12 points to 53.3 in September. Prices paid slipped to 78.0 after surging to 81.4. Orders rebounded to 58.2 from 56.6. Employment dipped to 52.9 from 54.9. Export orders were 54.5 from 55.0, while imports were 53.5 from 58.5.
September factory orders fell 1.7% in September, after a 2.9% increase in August (revised up from 2.5%) -- this was weaker than expected. Durable goods orders were revised from -2.1% to -2.4%. Shipments fell 0.5% after a 2.1% jump in August. Inventories fell another 0.1% after a 0.2% dip in August.
U.S. jobless claims fell 8,000 to 323,000 in the week ended Oct. 29.
Federal Reserve Chairman Alan Greenspan testified before the Joint Economic Committee on the economic outlook. The Fed chief indicated that policymakers are intent on preventing another 1970s-style inflation scenario from developing, says Action Economics. "That added to beliefs the Fed will stay the course near term, with the likelihood Bernanke won't make any policy changes at his first meeting on March 28," says Action.
Among stocks on the move, Merck (MRK) rose after a jury reportedly found that the drug maker did not commit consumer fraud in the marketing of Vioxx.
Guidant (GDT) shares slumped on news that New York State Attorney General Eliot Spitzer reportedly filed a lawsuit against Guidant, claiming it concealed from public a design flaw in one of its surgically implanted heart defibrillators.
Retailers reported higher sales for October. Costco Wholesale (COST) posted 10% higher October same-store sales and 12% higher total sales.
Abgenix (ABGX) and Amgen (AMGN) shares rose after the companies said a Phase 3 study of panitumumab met a primary endpoint of improving progression-free survival in patients with metastatic colorectal cancer who failed standard chemotherapy.
In deal news, Scientific-Atlanta (SFA) has hired two investment banks to explore a sale that could value the company at more than $4 billion, according to the New York Post.
Comcast (CMCSA) was lower after it missed the Street for its third-quarter results and said it expects a 13% increase in 2005 consolidated operating cash flow, vs. its previous 14%-15% guidance.
In other earnings news, Qualcomm (QCOM) posted fourth-quarter earnings per share of 32 cents, vs. 23 cents a year ago, on a 40% revenue rise. It sees 36-38 first-quarter EPS (pro forma). Citigroup reportedly upgraded the stock to buy from hold.
Priceline.com (PCLN) posted third-quarter EPS of 47 cents, vs. 28 cents, on a 9.7% revenue rise. It sees 24-28 cents fourth-quarter EPS (pro forma) and $1.33-$1.37 for 2005. The company set a $50-million stock buyback. Piper Jaffray reportedly upgraded the stock to outperform from market perform.
Treasury yields probed sharply higher in the wake of the rebound in the ISM services report. Relatively tough rhetoric from Ferguson and Greenspan on inflation also caught the bond market's attention and obscured the expected September downturn in factory orders, says Action Economics. The benchmark 10-year yield jumped to 4.64%.
European stock markets finished higher on Thursday after the European Central Bank left interest rates unchanged. London's Financial Times-Stock Exchange 100 index was up 73.3 points, or 1.37%, at 5,431.9.
Germany's DAX index rose 56.17 points, or 1.13%, to 5,011. In Paris, the CAC 40 index gained 72.37 points, or 1.63%, to 4,502.02.
Japan's markets were closed for Culture Day.
In Hong Kong, the Hang Seng index edged up 4.11 points, or 0.03%, to 14,601.59. Stocks hardly budged in Hong Kong, with regional leader Japan closed and the Friday release of the October U.S. labor report looming, says Standard & Poor's MarketScope. Cathay Pacific rose as oil price weakness drove speculation of lower fuel costs. Meanwhile, property plays came under pressure as major banks including HSBC Holdings and Hang Seng Bank raised their prime lending rate by 50 basis points to 7.5%, exceeding market expectations.